Financial Floyd Blogspot

Good Morning, This year has been a crazy one that seemed more like a soap opera than real life. One of the topics that I have blogged about in the past was the F.I.R.E. (Financial Independence, Retire Early) methodology. When I first learned about this topic earlier this year ( January 2019 post ), I was a little skeptical based on my view that some of its underlying future assumptions are flawed. Last week a proponent of the F.I.R.E. methodology wrote an article for CNBC about why the lifestyle turned out to be unsustainable for his family. The CNBC article highlighted a couple of key points; Income needs were overestimated based on an assumption of higher bond interest Children increase cash-flow needs Healthcare costs were underestimated Location and cost of living were significant factors in the cost of living The overall concept of F.I.R.E. is attractive, but sustainability was always one of my biggest complaints. I am a fan of the concept and the philosophy, bu...

Good Morning, The word "sustainable" is being constantly thrown around today because of our desire to live better/healthier lifestyles. This has come in the form of paper straws, plant-based burgers, more exercise, and more aware of climate change. But, did you know that there is also a way to do sustainable investing? Today, CNBC published an educational article about ESG (Environmental, Social, and Governance) Investing. This article is lengthy but informative. A couple of key points I picked up from the article were; 1. Investors are becoming more aware of this style of investing and moving money into various funds 2. This type of investing can be done using ETFs (primarily passive product) or Mutual Funds (primarily active products) 3. There is no common definition of ESG, so firms utilize their view of what it truly means I have seen this type of investment philosophy in many forms, but it is starting to become more prominent. From my experience, the one take -aw...

Good Afternoon, Finally, the Holiday Season is upon us! People have been shopping (hence strong Black Friday and Cyber Monday numbers), but the IRS can be a post-holiday Grinch. This week, the NY Times published an article about making last-second tax preparations before the end of the year. It has been some time since I've talked about taxes, but this article is worth reading. This article was very informative and had a few key points worth mentioning which are below: Tax Payers are still able to change their withholding rate  The number of refunds given was only down .3%, but for those making between 100k-250k the amount of the refund dropped about 11% (the average refund amount for all taxpayers declined 1.3%) It is advantageous to bunch itemized deductions There is an incentive to maximize contributions to tax deduction accounts (401Ks, IRAs, 529 College Savings Plan) If there is one thing that most of us taxpayers haven't considered is that we now need to...

Good Morning, Last week had tons of news with the impeachment trial, various economic news coming out, and the new Tesla truck following the heels of the unveiling of the electric Mustang SUV. Late in the week, Wall Street Journal published an article detailing that Bridgewater (one of the biggest hedge funds in the world) placed a trade which would signal that the US economy is going to crash in the first quarter of 2020. MarketWatch picked up the story because of Ray Dalio (founder of Bridgewater) tweeting that the story misconstrued their strategy. While this article was short on details, it brings up a great point. This year, Nobel award-winning economist Robert Shiller recently pointed out the danger of Narrative Economics. This occurs when a story creates the action instead of the opposite way around. The danger is that these stories create unneeded panic, which could've happened with this Wall Street Journal piece. The misunderstood part of the story is that Bridgewater...

Good Morning, Earlier this week, Google announced that it was entering the world of banking. While they aren't the first domestic tech firm to dive into the finance business they are bringing to light of a current trend that has been going on in front of our eyes. BBC posted an article earlier this week highlighting this recent move by Google and pointed out a couple of interesting points: Google and Apple are both offering credit cards, but now Google is targeting bank accounts Google teamed up with JP Morgan for this recent move Google pay doesn't seem to have been as successful as Apple pay might be The article breezed over three things that should stand out. First, despite our tech companies being considered leaders, they are copying some of the tactics that some of the Asian tech companies have done entering the area of finance. The second topic glazed over is how valuable our data truly is. Think about how a company that has access to your payment, income, a...

Good Morning, It seems that the markets have shrugged off some immediate risk as stocks have done well so far this quarter. But, according to a recent publication by the Chief Economist of Deutsche Bank 2020 will see some longer-term concerns still linger. Yesterday CNBC published an article highlighting 20 risks and I'll highlight a couple of risks worth paying attention to: The continuing growth of inequality Slow growth across seas Negative yielding debt While I only highlighted three, I would push you to read the article as more risks are intertwined that I did not mention here. From my view, the writer is more concerned about slowdowns impacting corporate profits and balance sheets which would force them to be more conservative with their decisions. I chose to focus on the three above because these themes are the most interesting as their impacts will weigh on societies and decisions for years. The continuing growth of inequality stems from individuals havin...

Good Afternoon, This past week has been all about the Federal Reserve. This week they announced a 25 bps (.25%) decrease to interest rates. Along with this decision, critical data about job growth and unemployment came out. FA Magazine republished an article in Bloomberg that highlighted one of the Federal Reserve Vice Chairman who provided additional insight on the US economy during a speech in Japan. Key points from the article were: The slowdown in global growth and trade policy “appears to be headwinds for manufacturing activity and investment spending in the United States and abroad.” Brexit (the UK leaving the European Union) continues to poise headwinds based on the uncertainty it creates The Federal Reserve is paying close attention to consumers The Federal Reserve President (currently Jerome Powell) has stated that the group is paying attention to all of the data points coming out. What most people might not be aware of is that our Federal Reserve is cognizant...

Good Morning, Have you ever had a dilemma of what to do with some extra money after you either refinanced some debt or paid off a huge liability? Last week an article in Business Insider made me think about this dilemma because a financial planner was explaining the difference of paying off a mortgage early or investing the savings. Key points from the article are: Because rates are so low, the homeowners should refinance when possible based on rates being so low In the case presented investing the refinance savings netted a difference of almost $100K over 15 years The best decision was to refinance the house (keeping the number of years the same of debt outstanding the same) and invest the savings along with the increase in earnings This is a great article highlighting why we should be aggressive with lowering interest rates on debt outstanding combined with the time value of money principle. What I liked about this article is that the author indirectly exposed that ...

Good Morning, Earlier this month I came across an article on MarketWatch mentioning the Wealth Scale that Bloomberg created. I read the article and found it quasi depressing and thought it wasn’t worth blogging about. After reading a couple more articles and diving deeper into the original Bloomberg content I felt it was a necessary article to blog about. A couple of key points I pulled from the article were: Thee scale seems weird but is based on the exponents using a base of 10 The median American household has a net worth between $10k- $100k There are only two people in the extreme bucket Globally there are not a lot of millionaires  The reason why I found this article slightly depressing is that based on the net worth numbers presented most people are just struggling to get by. Stressing savings is the right thing to say, but the best message based on the data is to live within our means. While I cannot speak on a global scale, within the US our consumption o...

Good Morning, I don’t know about you, but I love a good bargain. Whether it is a 10% discount or a BOGO (Buy One, Get One Free), I’ll always consider the option. The same can be said with financial advice. Everyone is searching for great advice at a discount price (hence why you are also reading this). Last week Financial Planning published an article about Schwab because they are considering creating a Robo-advisor for 401k programs. The key points from the article are: Vanguard has a Robo-advisor that currently is for accounts which have over $3,000 and the Robo-advisor utilizes a glide path similar to their mutual fund product This new product/offering can help with asset allocation and better decision making habits around investing The article points out that these products are available and accessible, but the one thing not mentioned is customization. Most of the off the shelf products are based on assumptions which might not be true for all individuals. The be...

Good Morning, I took a much-needed break from blogging, but don't worry, I've been paying attention to the market. Bloomberg recently wrote an article about the events during this past month because the market has been tumultuous. A couple points that stood out were: The Fed Chairman (Jerome Powell) made it a point to mention that they are concerned about the market The Yield focused sectors (Utilities and Real Estate, those that provide a healthy dividend payout) have been positive while the rest of the market has been negative Consumer Spending was down and very few market professionals were overweight equities The article did a great job pointing out a change in investor preference, but it over hypes the flight to "safe" strategies. What was not mentioned in this story is how investors have started to rotate out of the high growth companies and into those that have lagged in the past years. There have not been material changes in the main narratives...

Good Morning or Afternoon (depending on your time zone), Labor Day weekend is upon us, and with this marks the end of summer. Since most people are out and about, I'll make this a short but informative post.  In a previous post, I highlighted how this could be an issue based on how China handles this issue. MarketWatch recently published an article that is worth reading because it provides some good updates on what has been going on. The unrest in Hong Kong has been going on for over three months and the longer it continues the more it creates issues it causes for China. Hong Kong has had a close relationship with China after British rule and is considered the financial capital of Asia. This unrest creates more tension in an already complicated relationship, so the longer it goes on the more strain it puts on their uneasy agreement. What is not mentioned in the article is that  China is trying to build a better relationship with Taiwan and that country sees Hong Kong as a pr...

Good Morning, We are in the middle of the dog days of summer, but the market is going crazy. Last week was a tumultuous as the market started down and finished the week with news that GE might be running a bigger accounting scandal than Enron. I planned on writing about another topic, but I happened to see an article in  MarketWatch  that was worth touching on. The article mentions 10 macro risks that are currently present in the global economy which could have ripple effects. A couple of key takeaways from the article are: 1. Europe is a mess 2. The threat of China deploying the military to Hong Kong is real 3. The possibility that the US military will be deployed is increasing There was a lot to unpack in the article but the pressures in Europe have created headwinds for their companies and it looks like more might be on the horizon. Between the UK leaving the European Union with no deal, Italy not conforming, and Tariff Man turning his sights to European cou...

Good Morning, If you have been paying attention to the markets, this has been a crazy week. Volatility picked up, and market swings were apparent throughout the week. While this week has been hectic, some new information about lending standards made waves during the latter part of the week. The Wall Street Journal and MarketWatch both reported about alternative data being utilized within the credit approval process. Pertinent information that worth noting from these articles were: Companies (such as Upstart) are incorporating the level of education into the credit approval process Other companies have considered using data based on the school attended Student loan delinquency rates for those that didn't finish college are four times higher than those that did Utilizing alternative data outside of traditional metrics can add additional light on the borrower, but this methodology has the same faults as the current method, which is it lacks context. Th...

Good Morning, Last week was supposed to be all about the Federal Reserve, but the interest rate cut played second fiddle to the return of Tariff Man. On Thursday, President Trump announced that the government was imposing more tariffs on China. CNBC wrote an article that covered this topic along with a summary of the week. A couple of statements that stood out from the article were; The S&P 500 (biggest US companies) and NASDAQ (Technology companies) indexes both had their worst weeks of 2019 The Dow (Industrial companies) had its second-worst week of 2019 The new tariffs are scheduled to start on September 1st but can be rolled back if China purchases more agricultural products Companies have been planning for these tariffs by either purchasing more inputs/goods from China in advance or switching production to countries like Vietnam. On the other side, consumers cannot stock up which forces them to bear the cost of the tariff because companies pass on the price increa...

Good Morning, These past days have been fairly turbulent for the markets based on economic indicators trending lower, governments are starting to question the operations of the largest public companies, increased political uncertainty, and companies issuing lower earnings guidance. With everything going on, it made me think about a diversification article that Marketwatch posted last week. A couple of takeaways from the article are: 1. There is no way to consistently identify long-term winners 2. Based on a recent study: 1 of every 25 stocks was a long-term (4 to 7 years) winner 3. You should diversify among asset classes (small companies/large companies/stocks/bonds) The author mentioned Target-date retirement funds as a possible solution because these products automatically diversify for the client, but the diversification is based on a broad-based assumption/rule. They do offer a "set it and forget it" option, but it leaves the investors at the mercy of that fund c...

Good Morning, Recently I received a question about what stocks I’m looking at it and while I always have a couple of stocks that I might be considering I never have shared my reasoning behind looking at a couple stocks (FYI, if you are looking for free stock tips this is probably not the blog for you). This week CNBC wrote an article on Shaquille O’Neal and his investment philosophy that I thought would be good to share. A couple takeaways from the article are: 1.    Shaq overheard Jeff Bezos (founder of Amazon) saying that “he makes his investments based on if it's going to change peoples lives” 2.    Shaq has owned Alphabet (Google) and Apple for multiple years 3.    If Shaq doesn’t believe in an investment he doesn’t look at it As a person that is a fan of growth investing, I truly believe the first point, but I do understand at times there will be stocks that might be staples in peoples lives that are undervalued. At that same time, I understan...

Good Morning, We are halfway through 2019; most of the stock markets globally are doing well, the bond market is struggling with low yields, but the operating environment around us is changing. Marketwatch released an article this week painting a less rosy picture of the stock market. In the article that the author mentioned two points worth noting: 1. Firms with $5 Billion on average are down 5% this year 2. Mega cap firms are leading the way of creating a false narrative for most market cap-weighted indices This article is fairly brief, but it does provide good insight into what is going on in the market place. By pointing out that the stock movements this year have been dominated by the largest firms, this author sheds light on the concentrated nature of movements which is dangerous territory for investors. Stocks usually move in groups which give out hints about where we are in the economic cycle. When leadership is clustered within the largest stocks that is usually a sig...

Good Morning, Summer is here, but should we follow the old phrase of "sell in May and go away?" If you have been following my post, that is not something I preach, but it looks like we might finally receive some relief from the recent political developments. Yesterday MarketWatch posted an article from the Associated Press providing a recent update on the US/China trade war. In case you might not know, there is a summit going on with numerous countries participating (called the G20 Summit), and one of the most anticipated meetings was between the United States and China. The article from MarketWatch highlighted a couple of outcomes from the meeting: 1. US companies will be allowed to sell to Huawei 2. No new tariffs at this time 3. The administration sees Saudia Arabia as a key ally in the Middle East From my viewpoint, the first two points have the ability to impact the markets while the third point reaffirms our usual stance in the Middle East. To be fair, US compa...